Hotel Contract Negotiations: Tougher Dealings, Softer Rates

The negotiating season for 2016 corporate hotel rates proved to be even more challenging than in previous years, but efforts paid off, as rate increases came in softer than forecast in most global regions, according to analysts at mega travel management companies’ consultancy groups.

“We did run into situations where we really had to do multiple rounds of negotiations, similar to last year,” said Marwan Batrouni, senior director and global hotel practice area leader at BCD’s Advito consultancy, “but it felt like it was a little bit more demanding than last year, especially in primary markets.”

Eric Jongeling, director of hotel solutions in the Americas for Carlson Wagonlit Travel, said many clients had a hard time getting hotels to even respond to requests for proposals, as the suppliers expected larger room night or spend commitments. That back-and-forth of trying to get hotels to bid added time to the negotiation season, Jongeling said.

In North America, hotel rates increased on average 2.7 percent year over year, according to Batrouni. “Not too bad,” he said, “given that we were forecasting a little over 5 percent increase for the entire year.” Not surprisingly, San Francisco proved the anomaly, as rates increased more than 10 percent year over year. In New York City, negotiated rates increased an average of 1.5 percent, while in Houston, rates dropped 0.2 percent. Chicago’s average increase of 2.8 percent was on par with the region.

Europe saw a 0.8 percent increase in rates. That average, the result of large increases in some markets and significant decreases in others, is less than the 3 percent originally forecast by Advito. Rates decreased in all other regions, 3 percent in Latin America, 2.4 percent in the Middle East, 1.2 percent in Asia and 0.2 percent in Africa.

“Every region has a slightly different dynamic in terms of supply and demand, so that definitely plays a part in what we are seeing here,” Batrouni said of the softer results, “but we feel that negotiations are also playing a fairly big role. We compare the initial bids that come in, which would be indicative of how suppliers feel about the situation in their specific markets, with where we end up at the end of the RFP season. In all cases, the initial offer is higher than where we actually end up.”

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